Eurozone Prospects

Many will have heard Alan Ahearne on Morning Ireland explain why we should try to work our way out of the crisis by ‘sticking to the plan’. He clearly believes that the Eurozone will survive in its present form and that the costs of Ireland defaulting and/or unilaterally leaving the currency union would far outweigh the benefits.

In their recent ESRI publication, John FitzGerald and Ide Kearney set out in some detail why they believe the Irish debt problem is manageable and why we should should stick to the plan. This was already posted by Philip Lane and has been discussed here.

Nouriel Roubini, on the other hand, believes that ‘sticking to the plan’ has no chance of working in Greece, so it should organize an orderly default and re-introduce the drachma. Some of the arguments he makes are compelling and many of them apply with some force to Ireland, especially the difficulty of restoring competitiveness and growth through a deflationary internal devaluation.

We need to evaluate the prospects for the Eurozone and our place in it.

The scale of the competitiveness problem implicit in your post (‘apply with some force’) is not obvious to me. Put it this way – Ireland (pop 4.6m) exported €157bn in 2010, compared to €101bn for Greece and Portugal combined (pop 21m). Our export growth over the last couple of years has been good, while the inflow of new greenfield investments continues to be strong. We now have a current account surplus, which should be around 2%+ this year, compared to large deficits in other troubled economies – Greece (-11.8%), Portugal (-9.8%), Italy (-4.2%) and Spain (-4.5%).

Depressing , “the growth model” pursued by Germany and indeed Ireland is deeply retarded.
Completely inverting the concept of wealth creation.
You export goods to people who hold good paper – but the entire paper game is upside down.
Could commentators please stop the phrase return to the market as a “sovereign” – its insulting even to those Dorks of limited intelligence.
Europe has decided that indivdual commercial banks have a superior credit rating then at least some Goverments – this is a completely arbitrary decision which is not based on any “economic fundamentals” but on pure power dynamics.

A sovergin country does not need a bank to issue anything – we have travelled a long way from Napoleon’s Louisiana sale to wage war without direct bank financing , but this extreme form of bank governorship is taking the piss now.

The euro zone cannot survive in its current form. Fiscal and banking federalism are essential if the single currency is to survive in the longer term. That means a new treaty, which means a referendum in Ireland. The country has to decide then what it wants to do ie either leave and reintroduce the punt nua or sign up for much closer integration.

Roubini is correct. Default and exit from the euro is now the only realistic option for Greece. And let the creditors take the hit that is coming to them.

What I find truly amazing is that Greece are still trying to stick to a plan that is clearly not working and whose effect will be to impoverish Greece, both economically and socially.
There certainly is a ‘inflection’ point that Greece has long since passed. They should not take anymore anymore.
Mr Venizelos added that Greece had been “blackmailed and humiliated”.http://www.bbc.co.uk/news/business-14969034.

Ireland should keep its options open at this point. Ireland is not glued to the EZ.
But if there is any attempt to humilate Ireland on the level experienced by Greece, then Ireland should pull the plug on the EZ.
It is time to take back control of our own destiny from ECB people like Stark, Trichet, Bini Smaghi et al.

On the other hand, Citigroup’s Willem Buiter recently said: “In our view the bottom line for Greece from an exit is a financial collapse and an even deeper recession. The slightest fears that Spain or Ireland could follow Greece out of the euro would spark massive bank runs right across the euro area.”

Also, UBS analysts Paul Donovan and Stephen Deo calculated that if Greece or Portugal left the euro, they would lose up to 50% of their national income whereas France or Netherlands would lose 22—25% if they left. (as reported in The Guardian, 6 September)

The economic parameters of the problems confronting the euro have been analysed ad nauseam and the process has served to hide the fact that the fundamental problem is a political one. Two further article references need to be added to fill this lacuna, those by Wolfgang Munchau and Larry Summers in today’s FT.

As an observer on CNBC now has just remarked, nobody cares about the Greece except the Greeks. What the powers that be in Europe care about is their banks. They either throw good money after bad trying to get the Greek leopard to change its spots or they decide to take the hit and recapitalise their banks to meet a major write-down of Greek sovereign debt, which need not imply that country’s departure from the euro if it is done in a managed way. There are a variety of ways of doing this, one component being to leverage the EFSF by allowing it to guarantee bond issues by the banks, as the US Treasury Secretary is advocating.

The EZ17 seem to be slowly groping towards this solution but have to squeeze at least some more juice out of the Greek lemon. But the taste will be sour one way or the other.

The comment reported above about Greece could be applied with equal accuracy to Ireland. Nobody cares about Ireland other than the Irish. We have no choice, in the circumstances, but to “stick to the programme”.

I just don’t get it. Why does it appear to be mandatory to preceed ‘internal devaluation’ with the adjective ‘deflationary’? This unthinking use of language is precisely what gives all the ammunition they need to those who are prepared tp fight tooth and nail to prevent the introduction of structural reforms, changes in the broader public ownership/financing/management and expansion and enforcement of competition law that would bring the cost of living down to average EZ levels.

Yes, if the internal devaluation focuses solely on pay levels (and employment levels) it is likely to be deflationary – but even then if it reduces purchases of what might generally be viewed as non-essential imports or investment in overseas assets it would not be deflationary. But if a large share of the internal devaluation results from structural changes that target monopoly profits, inefficienies and deadweight costs without impacting on pay or employment levels it most certainly will not be deflationary.

For goodness sake, we are part of a single currency zone and a single market. Yes, Ireland, by virtue of its location, might be exposed to some additional transport costs; there may be some loss of economies of scale or scope due to the size of the market; and a low population density may have an impact. But when I hear this it provokes my ‘special pleading’ detection antennae. It also ignores the fact that the EZ average cost of living includes some glorious inefficiencies; we should be able to beat it. And our magnificent exporters don’t seem to have major problems with transport costs to and from Ireland.

An internal devaluation that focuses on stripping out monopoly profits, inefficiencies and deadweight costs would be expansionary and not deflationary. But far too many are doing well with the status quo and, for obvious reasons, are vociferously opposed to an internal devaluation of this type. Let the plebs take the hit. And perhaps one shouldn’t be surprised that they have active and passive supporters in the academic firmanent.

An internal devaluation is, by default, deflationary. It reduces wages and increases taxes and therefore leads to a contraction in domestic demand. This is blatantly obvious and tons of evidence exists support the deflationary impact of an internal devaluation. To make the case for an internal devaluation that does not reduce pay is not an internal devaluation. It is simply a case of structural reform.

The normative point you are making is that a deflationary spiral (or depressed domestic demand) is neccessary to achieve structural reforms. That is a valid opinion. But, to state that it will lead to ‘expansion’ (and by this I assume you mean economic and employment growth) requires empirical evidence that is in very very short supply.

@Paul
You would have to seperate private credit from public credit before such a adventure could be efficient.
The internal devaluation is grossly inefficient as it puts necessary capital formation and labour on ice to pay doggy paper.
Your much heralded super efficient electrical utilities would just have to continue with their depreciation of assets to remain alive.
Its zombie capitalism really – entertaining in a superficial way but unlikely to win any arthouse awards unless executed with a Ungodly expertise.

Indigenous exports are not as important as foreign multinationals, regardless who said it.

This strong preference for indigeous firms (and suspicion of MNCs) is a common thread among Irish commentators as far back to the deeply flawed Telesis report of 1980, which subsequently has been proved to be nonsense.

The three decades since Telesis have seen an entire continent of four billion people lift itself from subsistence onto the road to modernity, based precisely on a strategy of attracting foreign investment. If the growth of early developing countries was based on native industry, the strategy for late developing countries has been to harness foreign capital and know-how. If you were to identify a moment in time when this switched, 1980 is a reasonable one, so the writers of Telesis have some excuse for not seeing it (modern commentators don’t).

In terms of employment, indiegenous exports account for just over 1 in 4 of all export facing workers (excluding tourism). Further, the jobs in these companies are generally lower skilled and lower paid than their MNC equivalents.

If structural reforms rip out monopoly profits and reduce prices, if they force efficiencies that reduce prices and if they drive productivity increases that lead to increased output at lower prices – all without changing pay or employment levels – are they not contributing to the necessary internal devaluation? And, furthermore, are they not increasing real disposable incomes and leading to increased economic activity? Is this not expansionary?

The reason that the Irish cost of living has fallen from being 25% above the EZ average and remained stuck nearly 14% above is that the traded and exposed sectors have done their bit, but the sheltered private, public and semi-state sectors are vociferously resisting these reforms. This is a policy and structural issue; it is not a market issue. The market has done what it can – to the extent it was allowed to do so by existing policies.

Sorry stepping back from the previous post, can you explain if you do or don’t think ireland is competitive?

Are you questioning the trade figures? Are you questioning the BoP figures? While you may have problem with the FDI figures, do you have a problem with the others? If you were to lay out the key arguments for saying that Ireland is highly uncompeittive, what would they be?

Like a broken marriage that requires a break-up, it is better to have rules that make separation less costly to both sides. Breaking up and divorcing is painful and costly, even when such rules exist. Make no mistake: an orderly euro exit will be hard. But watching the slow disorderly implosion of the Greek economy and society will be much worse.

So who is going to be the first commenter to say that Roubini is pushing the soft option?

I take a fairly gloomy view of things in general, but I’m far from being convinced that Ireland will be forced out of the EZ. But if it happens I won’t be too sad about it. I’ve seen enough of the ECB to persuade me that it will never be a good central bank from any viewpoint but Germany’s – and even there only sometimes.

I made the point at the start that export competitiveness is not a problem for Ireland right now, and I believe that leaving the euro to solve a non-problem would be massively damaging to our economy. Sorry to drag it back to the purpose of the thread, but are you saying that we are compeittive or uncompeititve?

(BTW I apprecaite that you are among the very few who bother to interrogate UNCTAD and other export related data despite their importance to the Irish economy, and would be happy to discuss further on a different thread.)

Back to Greece…it could have a major impact on whether we succeed or not.
Just reading some of the demands being made on Greece today
“The authoritative Sunday Vima, citing an internal government email, said the country’s international creditors had not only demanded that 100,000 public sector workers be laid off by 2015 but also that the pensions of farmers, sailors and employees with the telecommunication organisation OTE be cut immediately. Around 50,000 state employees would have to be placed on reduced pay in a special labour reserve immediately. With the atmosphere becoming ever more explosive, such measures would almost certainly exacerbate social unrest.”

Obviously they do not have a Croke Park Agreement. The immediate cuts being demanded are savage and one has to have some sympathy for the Greeks.

Maybe they should heed this advice..
“Mario Blejer, who managed Argentina’s central bank in the aftermath of the world’s biggest sovereign default, said Greece should halt payments on its debt to stop a deterioration of the economy that threatens the EU.
‘Unpayable’ Debt

“This debt is unpayable,” Blejer, who was also an adviser to Bank of England Governor Mervyn King from 2003 to 2008, said in an interview last week in Buenos Aires. “Greece should default, and default big. A small default is worse than a big default and also worse than no default.”

I can see you’re trying to provoke a response from Michael H. I’ll let him rise to the bait if he wishes. But, in terms of ‘competitiveness’ – whatever, as Prince Charles might say, that means – I would draw a distinction between the export enclave economy (which the IMF recognised in their first post-Nov. 2010 country report) and the domestic economy. MNCs can manage their need to engage with the sheltered sectors in the economy to minimise their costs in ways that ordinary citizens and small businesses can’t. (Even when things get messy, they can force the Government to cut a deal. The ‘re-balancing’ of electricity prices so that they have been reduced significantly for large volume industrial users is a case in point.) But ordinary consumers and small bsuinesses have to pay for this largesse.

So, yes, from the perspective of MNCs looking at Ireland as a regional economy within the EU with some autonomy to provide favourable fiscal conditions, Ireland is ‘competitive’ – and its competitiveness has probably improved. (So putting on the kamikaze headband and doing a flight from the Euro would be lunacy.) But, from the perspective of an ordinary citizen, a small business or a tourist, it isn’t – even if it has improved a bit.

However its also true that indegenous firms have benefitted (food exports running up 19% yoy), tourism up 15% (though annual comparison flattered by ash disruption last year). Food/drink prices are rising at 7% pa in the UK right now, which can be taken as an export-price index for Irish indigeneous exporters.

I think we’re agreeing violently. Quite apart from the MNC export enclave, I agree that the indigenous exposed, traded sectors are displaying a remarkable resilience and an ability to take full advantage of any favourable external developments. It’s the sheltered private, public and semi-state sectors with which I have a beef. They are dragging down those who can’t escape their clutches – unlike the MNCs – and impairing the performance of the traded, exposed sectors.

And I’m sure it hasn’t escaped your attention that the chorus advocating a Euro exit, in the main, are the well-heeled and comfortably positioned in these sectors. While we are reliant on the official external funders we have no option but to stay the course and complete the internal devaluation. But those who are sitting pretty in the sheltered sectors would rather take the economy down than consent to the structural reforms required.

It looks like modern day France and Germany and many other Europeans want to treat Greece as per Clemenceau reputed remarks at Versailles.
‘When the goose is on the table, you don’t ask her how she would like to be plucked’.
I just hope that the Greeks summon up the courage of Leonidas and tell the financial sharks and their masters to take a hike.
Europe has heard enough of the debt collectors drum. The current European approach is disastrous for the EU. Greece may well do as Egypt did back in 1970s and turn to Russia for financial help dumping NATO etc, along the way.
That is the card they should play. They have taken enough humiliation.

However, as many contributors to this site are quick to point out, we have to remember the impact of transfer pricing on our trade performance. Indeed, the details of our BoP statistics raise a lot of difficult accounting issues. It’s been a while since I had to try to clarify the numbers for students and I am glad not to have to explain the significance, for example, of an Errors and Omissions figure of +€6.8 billion in 2009 and -€12.5 billion in 2010, or of a surplus of €28.2 billion for ‘computer services’ in 2010?

The fact is that our apparently strong export performance is not feeding through to an improvement in the employment/unemployment situation. Leaving aside the construction sector, the numbers in employment in industry, tourism, and some other sectors are still falling, and unemployment seems stuck at 14.5%. There is a real sense in which these figures point to a lack of competitiveness (high labour costs relative to productivity) that will be very hard to correct through an ‘internal devaluation’ (deflationary!).

I believe General Custer ‘stuck to the plan’…. and they did the same thing at the Somme….. and then there were those 3,000 Greeks who also ‘stuck to the plan’…. my guess is though that modern day Greece is trying to give all the appearances of sticking to the plan so that when it hits the fan they can say, “Look, we tried everything and bent over backwards to do as we were told.” It’s called ‘positioning’

Anyway, I have been liquid for a while now and stuck half my savings into £’s last week. I just need a bunker, a decent supply of water and some tinned food now. You see, I have a plan…..

Larry Summers’ article is superbly written IMHO. He agrees with the wide consensus (outside of political spin-makers) that the currrent Greek “plan” is not credible. He does not take a clear position on what this means in terms of correct policies though. Just that credible policies need to be adopted now in place of extend-and-pretend policies. Maintaining the myth that the existing Greek plan is credible is no longer “buying time” in any useful way. So either Greece defaults and stays in the Eurozone with help or defaults and leaves the Eurozone. Perhaps the latter is preferable for the Greeks? It allows them to rebalance their economy more easily via devaluation?

“The three decades since Telesis have seen an entire continent of four billion people lift itself from subsistence onto the road to modernity, based precisely on a strategy of attracting foreign investment. ”

Rural India is still very, very poor, Ronnie. Uttar Pradesh is a feudal state.
Western China is too. 65 million kids left behind in orphanages by parents who work on the coast according to the FT.

… and nothing of any real political significance will happen without Germany ….

‘Chancellor Angela Merkel’s authority is being undermined by leading members of her coalition partners, the FDP and CSU parties, who have openly challenged her policy on the euro. There is growing speculation that her coalition may collapse, prompting a return of the right-left grand coalition of conservatives and SPD.

The ‘Pirates’ took 9% in Berlin Election …… with a Grand Coalition again there might be some hope for sanity and pragmatism ….

The evidence will always point to high labour costs relative to productivity if that’s the only place people look. But workers will seek to defend their nominal pay levels (whether they are out of sync with productivity or not) if the cost of living is higher than it should be. And there is objective evidence that the cost of living in Ireland is higher than the rest of the currency zone and single market of which it is part. And there should also be enough evidence that this is higher because of the impact of factors other than labour costs. Do Irish economists operate under the illusion that monopoly profits are not being extracted in some sectors and that this gouging is keeping final prices than they should be?

And is there not some recognition that the structures in which workers operate, the management they labour under, the way capital is combined with their inputs and the efficiency with which this capital is provided and financed all impact on total productivity?

Or is there some unevidenced belief that these reforms are all far too difficult to contemplate, that they are ‘slow-burn’, that the resistance they might provoke would serious malign impacts or lead to unintended consequences?

And, from a purely pragmatic, ‘political economy’ perspective does it not make sense to pursue the structural reforms that will reduce prices, increase disposable incomes and allow scope for subsequent reductions in the pay of some workers if it remains high relative to productivity- rather than succumb to the knee-jerk (and inevitably deflationary) option of cutting pay?

I’ve a vague sorta sense that the Euro has disproportionately benefited Germany in particular over recent years…is there any truth to my suspicion…and could such be quantified and termed a ‘monetary transfer’ ?

Why waste years taking on the domestic monopolies. Just pull the rug straight out from under them by forcing them to use a new parallel currency carrying the full faith and credit of the Irish Republic.

I’ve a vague sorta sense that the Euro has disproportionately benefited Germany

No need to be timid about that question.

Germany has benefitted enormously from the Euro, some because of its own export competitiveness.

Since the crisis broke in 2008, German public finances have benefitted hugely. Their borrowing costs have been much lower than would otherwise be the case.
More importantly, the German banks have oodles of cash as depositors used German banks as a ‘safe haven’. This fact in turn has caused huge problems in deposit flight from peripheral banks. It would be interesting to know the amount of Irish private and corporate money on deposit in Germany/France right now, though the people who deposited in France are probably moving the dosh across the Rhine as we speak.

This crisis until recently has been a bonanza for Germany. It is only when stock markets collapsed again in the last few months, causing pension funds to suffer, has Germany seen any downside.

Further, to those who say, Germany does not want to pay ‘anymore’ to bail out Greece or other ‘unnutzen essers’, the fact is that Germany nor France nor any other country has contributed any funds so far.
And any funds contributed via the EU or EFSF/ESM had up until last week a very handsome profit built in for the lender.

Please don’t conclude from this that I am anti-German. I am not.
But I am certainly against the policies pursued by Germany during this crisis. In European terms they have been utterly irresponsible. Even in terms of Germany they have been extremely short sighted. The reason for this is that in a collapse in the EZ/EU, Germany stand to lose more than any other country.
It is surprising that German citizens cannot see that. But then it was surprising that Irish citizens could not see that the hubris generated by the housing ponzi scheme was just hubris. Some Irish people clearly thought that they had reinvented the word entrepreneur.
See what Sean Fitzpatrick was saying in June 2007, probably the height of the insanity.

Well that conference call between Evangelos Venizelos and the Troika produced nothing. Due to resume tomorrow at the same time. CNBC are reporting that the Greeks may have to issue IOUs to pay the PS workers. I wonder what currency they issue them.

@Bolshevik
From the BBC link you posted..
“Greece is close to that tipping point where almost whatever new austerity measure is implemented will fail. Significant sections of society are in a state of resistance.

Many Greeks are humiliated. They watch their leaders take their orders from outsiders. They no longer have a say, or so it seems. Unknown inspectors from such organisations as the EU and the IMF decide their future. ”

Our guys take orders from the same people and I don’t see much humility

Why be humble when you are earning twice as much as the guy at the other side of the desk trying to humilitate you. Just sitck you tongue out at him and show him your payslip!
So no humility to be expected from our well paid leaders, but buckets of humiliation for a significant minority of the population.

As pressure from Greece’s foreign creditors and austerity-weary citizens mounts on the government, Prime Minister George Papandreou is considering calling for a referendum on whether Greece should continue to tackle its debt crisis within the eurozone or by exiting the single currency.

According to sources, Papandreou hopes that the outcome of such a vote would constitute a fresh mandate for his Socialist government to continue with an austerity drive backed by Greece’s international lenders — the European Commission, the European Central Bank and the International Monetary Fund.

A bill submitted in Parliament, paving the way for a referendum to be carried out, is to be discussed in coming days.

Sources told Kathimerini that many of Papandreou’s close aides had proposed the idea of a referendum to the premier earlier this summer. Since then, pressure has mounted on the government from all sides with Greece’s foreign creditors pushing for quicker and more effective reforms, citizens reacting to the cuts and even members of PASOK’s political council objecting to plans to slash the public sector.

During an emergency cabinet meeting on Sunday, several ministers are said to have pressed for drastic action, with some of them calling for early elections.

Interior Minister Haris Kastanidis noted that a negative outcome in a referendum would prompt snap polls. Agriculture Minister Costas Skandalidis reportedly opposed the idea of a referendum and proposed that the government call snap polls as it lacks the mandate to take any new measures, while Education Minister Anna Diamantopoulou suggested that PASOK investigate alliances with other political parties.”

The outgoing Juergen Starks comments appear to brush sovereignty and democracy aside like a mosquito and are extremely concerning when considering the European project as a whole.

All we know to date (IMO):

-There is a lot of uncertainty, but the Germans/French have, in my opinion too much political and financial capital invested in the EU project and euro to let either fail.

-Society appears stable in Ireland.
-The cost of living continues to fall in Ireland.
-Population has increased by 100,000 in 5 years and the much talked about mass emigration has yet to transpire.
- Unemployment remains high, perhaps the emigration ‘safety valve’ is (thankfully) not working
-Growth appears to be returning. Consequently it would appear our small open economy seems to be facilitating balancing a budget via austerity.
- We don’t know what will happen if we exit the euro (I don’t buy Roubinis arguments).
-The good boy strategy, in combination with stupidity (read bank guarantee), has seen our country bail out private investors in the countries bank, primarily to the benefit of European banks.
-Though it can also be argued the same strategy has given us a reasonable interest rate on our ECB/IMF/EU loan.

In certain respects our limited ‘success’ is being used as a club by the Germans to beat the Greeks with. I wouldn’t over do the sympathy for the Greek government though.

Greece will get a debt reduction eventually, more than an even chance it’ll be inside the euro, there’s a price to be paid though and that’s what all the can kicking is about. Like everyone trying for the back seat in a taxi, forcing the last to the front, there will be a bill to be paid and each party is involved in a game of chicken to minimize that bill, knowing (or at least hopefully knowing) the meter is running and the bill is likely to rise the longer the game goes on. Though imminent catastrophe may be a strategy to try and soften opposition at home from the average German or French taxpayer to paying more for European stability.

The big question now is what happens after for us. Noonan was quick to kick the remaining Anglo senior bonds issue to touch after his visit to the ECB and just as quick in raising the idea of a reduction in the promissory notes interest rates. Perhaps the cynicism of Namawinelakes and others is well placed, or perhaps when the balance sheets of the French and German banks need to be bolstered after a Greek debt reduction, there will be a wider solution and our good boy strategy will be rewarded further, something that may have been suggested to Noonan.

Hopeful I know but either way, considering some of the knowns point to us balancing the budget and the huge uncertainty around the known unknown of euro exit, I don’t see any other option other than ride it out as the good boys, at least until we narrow the deficit. Then we can consider whether Starks comments are indicative of the new anti-democratic EU and/or euro project and whether Ireland wants to be a part of her.

It is time for Ireland to use its voice, Michael Noonan gives every appearance of being asleep at the wheel – prasing the inadequate July fudge.

If we just speak in our narrow self interest, we will rightfully be dismissed. It is well, well past time to speak up about the EZ crisis, the dithering needs to stop. However FG are an amateur, ‘don’t rock the boat’ party, and our principle economic adviser is an ex labour economist of very modest abilities.

Where is PR Guy when you need him. We need a translation on your link.
Worth quoting Bloomberg in full.

Greece said in a conference call tonight between Minister of Finance Evangelos Venizelos and high representatives of the European Central Bank, European Commission and International Monetary Fund “a productive and substantive discussion took place.”

Tomorrow morning, the teams of technical experts already in Athens “will further elaborate on some data and the conference call will be repeated tomorrow at the same time,” the Greek Finance Ministry said in an e-mailed statement.

Just watched closing on CNBC and the DOW recovered about 100 point on the news that “Greece announced they were close to agreement with Troika”.

I don’t know how you could interpret the Greek Finance Ministry statement as published by Bloomberg as suggesting they are close to agreement. They must be desperate for positive news over on Wall Street.

@ Des B,
I put it to you that our govt should do precisely the opposite that you propose. It should meet the requirements of the MOU- no more no less. By so doing it becomes the honours student in remedial class. That way it get whatever brownie points when the current strategy goes belly up. Then it can turn to the Troika and say Certa bonum certamen. Now how bout a bit of debt restructuring.
There is nothing to be gained by going over the top at this time.

I don’t know, one could reach the conclusion that ‘the markets’ appear to think rightly or wrongly that the euro will survive with current membership and look for any signal to justify the position. Or maybe there’s been a leak from said talks, who knows.

The referendum news appears big but the question mark in the title ‘Greeks to vote on future in eurozone?’ alludes to a lack of certainty on the authors part and there’s no quotes from said ‘sources’. It could be a bit of flag flying and/or bluffing from the Greeks, god knows the last thing the Germans want is for the people of europe to have a say.

@Tullmcadoo
‘Keep the head down’ is a very Irish strategy, one to avoid debate or controversy…as is the “nudge, nudge, wink wink, if we play along we’ll get something we shouldn’t”.

We will look for what is necessary, and what we deserve.

If we let the plump ditherer and her maniacal imp side kick continue on producing their FrankenFudge….the world economy will plummet into depression and we’ll lose out worst of all (being a small open economy)

@David O’D
One Andrew McDowell. A nice guy…but more than a little odd that the chief adviser to the govt has no serious background in either macro or finance

@Joseph Ryan
You might be surprised at who has their own bank – all the car companies, for example, airline manufacturers, basically, anyone who is going to build stuff for customers on credit. The thinking is that they might as well get the interest benefit/offer the best credit terms to secure the deal.

@Tullmcadoo
Who are the well qualified people working with Noonan ? We’re in the throes of an extreme financial crisis, political actions in Ireland regularly have billions attached – yet we’ve no council of economic advisers.

There is a huge amount at stake here, Merkel and Sarko are busy trying to cook up a new batch of FrankenFudge…which will cause global financial systems to freeze. That will tank our real economy, and in the long run, neither Merkel nor Sarko are respected in their countries – and prudent intervention will be understood by everyone.

Trichet, Juncker et al dismissing Geithner out of hand, just shows how bad the fudge bubble is in Europe.

‘An economist imbued in the Fine Gael tradition — like his first cousin once removed, Michael McDowell — he joined Fine Gael in 2006 from Forfas, a government economic think-tank that his policy unit will probably recommend demolishing with other quangos.’

Just spotted that first cousin once removed on patronising_pat – lets hope his policies are a good bit more than ‘once removed’ from the Blue Nun drinking (Hi Sarah C.) inequality advocate – the Bould Mick PeeDee McDowell …

@Tull
Being class pet is ok but the teacher won’t make it to the end of term. We gotta make sure we can manage the free-for-all. It’s about running 2 plans at once -I.e. Follow the MOU and crank up the punt printers. No lose

“Standard & Poor’s Ratings Services on Monday cut Italy’s sovereign-debt rating a notch, saying the Mediterranean nation’s weak economic growth and fragile government coalition will make it harder to head off the growing crisis sweeping the euro zone.

The news represents a fresh setback for the currency zone’s third-largest economy, which has wrestled with the effects of a widening European debt crisis and more than a decade of tepid domestic growth.

S&P now rates Italy at A, five steps above junk territory. Its outlook is still negative, reflecting weakening economic growth prospects and government divisions that will likely limit the Italian Parliament’s ability to respond decisively to those challenges. ”

“Cicciolina, is the unlikely centre of a bitter row over the cost to ordinary Italians of the perks enjoyed by their country’s tens of thousands of politicians. It emerged on Monday that the Hungarian, who starred in almost 40 hardcore pornographic movies, will soon be enjoying a €39,000-a-year (£34,000-a-year) pension, provided by the taxpayers of her adoptive homeland.

The stipend, which is for life, is her reward for labouring as a member of parliament for all of five years, from 1987 to 1992. Staller was elected for the libertarian Radical party and sponsored a number of mainly sex-related bills, including one to set up “love parks and hotels”.”

@Joseph Ryan
The pay wall is blocking me but I think I saw Siemens sheltering 6b. I can’t say I blame them. Nicky must be peeded off that they are taking the dosh out of his banks.

I think the big story…the proposed Greek referendum is a great ploy by the Greeks …it appeared in the online edition at 22.10 local time, just after an inconclusive Troika conference call. Angela will not be impressed but she can do sfa about it…democracy and all that… So give us the 8 b or we press the nuclear button.

@John Foody
That’s the bullshit I referred to earlier that brought the DOW up 100 points in a half hour before the close. Read it carefully…no substance whatsoever. I note that Sky have reverted to the earlier announcement by the Finance Ministry. Maybe an SEC inquiry is warranted.

The Greeks are ill disciplined and duplicitous, the whole saga started with a Eurostat investigation into their cooked books. Angela is wasting all our time focusing on them. The issue needs to be cyrstallized and fast, else Greek bonds are toxic.

And Italy isn’t in PIIGS by accident either…with their demographics and debt, they clearly need a huge reduction in public spending.

Due to the cacophony of EZ voices, the lack of any principles, and the incessant FrankenFudge: the EZ has vastly narrowed options, any solutions that rely on good intentions and future plans – will have vastly diminished credibility.

They’ve had their time for faffing and dithering…crystal clear solutions are required, and if the hits aren’t taken now…it needs to be made crystal clear just who is on the hook.

PR Guy was so knackered when he got in from work last night he went straight to bed.

I will catch up with all things Greece in a minute after my third coffee but you can be sure of one thing… a short emailed statement like that means nothing substantive at all and more likely a case of Evangelos presented, Troika didn’t like what they heard, Evangelos said he would go back and do some more sums. The various surveillance units available to the Troika (and believe me, they exist) means they knew what he was going to say before he said it so they would have told him precisely which sums to go and redo this morning.

It’s maths Jim but not as we know it.

I did hear that George was on the call too but can’t confirm.

The referendum thing has been going around for a few days now. Rumours of an imminent collapse in support for George from backbenchers who no longer want to be associated with more austerity because it’s doing them too much damage in their constituency so George thinks he can throw them this bone to keep them happy but feedback he’s getting not good? The other story I heard about it is that George is thinking “wtf? I didn’t sign up for all this aggro so I will give the people a referendum and it will give me an out because the result is a foregone conclusion” Dunno. It all smacks of the fig leaf of democracy though

@John Foody

“Like everyone trying for the back seat in a taxi, forcing the last to the front, there will be a bill to be paid and each party is involved in a game of chicken to minimize that bill, knowing (or at least hopefully knowing) the meter is running and the bill is likely to rise the longer the game goes on”

I see it more as a case of the taxi is already hurtling down the road towards greater European integration, Germany is in the front seat and Greece, in the back seat with some of the others, leaned forward and put their hands over the taxi driver’s eyes!

I see the ‘jump ship now’ brigade are in full cry. The crisis in the EZ has gotten worse for two reasons. First, there are some market participants who make money out of provoking chaos and volatility and others, probably a majority, who always require political action yesterday. Politicians find it difficult to respond with such speed, but they can if they realise they have no option and feel confident they can persuade their voters. This is what happened in the immediate aftermath of Sep. 2008.

And this leads to the second reason. Senior core EZ politicians have started out from ‘square minus one’ when it comes to persuading their voters that they need to put their hands in their pockets to rescue perceived peripheral spendthrifts. (They had used ‘constructive ambiguity’ to convince voters of the robustness of the Euro institional framework they had created; many of their voters were convinced they had lied.) But the costs of doing so are immediately quantifiable; the benefits are nebulous and uncertain. And, since eaten bread is soon forgotten, the benefits of the Euro project to the core countries has never been properly quantified or appreciated. And so it has been a long drawn-out conversation while market participants light fires everywhere to prompt an immediate political response. And we should not forget that considerable institutional reform has being taken place and that the ECB has been compelled, as it would see it, to operate ‘ultra vires’ in the absence of political resolve – and , yes, countries that put themselves in the line of fire have been punished disproportionately. And all tbis to provide cover for the grindlingly slow accumulation of political resolve.

And, unfortunately, the crisis had to increase in severity (and in its costliness to resolve) before the politicians felt they could make the case to their voters to finance severe remedial action. And we are now getting close to that point.

Nothing is ever certain, but the balance of probabilities suggests the Euro will survive. No senior politcian will want history to record that the Euro went down on his or her watch. And across the board, all the major players recognise there is far too much at stake for failure to be an option. The key uncertainty relates to whether Pres. Sarkozy and Chancellor Merkel will do what is required, even if it seriously prejudices their chances of re-election in 2012 and 2013 respectively.

But for Ireland to contemplate jumping ship is sheer lunacy. The external official lenders are keeping us sheltered from the storm. But then again it seems every excuse will be found to avoid completing the internal devaluation required – and those who should know better tacitly sanction this indulgence.

“The key uncertainty relates to whether Pres. Sarkozy and Chancellor Merkel will do what is required, even if it seriously prejudices their chances of re-election in 2012 and 2013 respectively.”

If you were the CRO (Chief Risk Officer) of Europe, do you think Merkel and Sarkozy would do anything to prejudice their chances of getting re-elected? On a risk scale of 1 (lowest – they would take a bullet for the European team and do what is required irrespective of persnal damage) to 5 (highest – let them eat cake) for each one.

I think I would give Angela a 3-4 as others might push her. Sarkozy? I’d give him a 6.

I agree. And that is why I fear the inevitable fudge that will emerge will not be convincing and will not end the crisis. The timing is wrong and the political configurations are wrong in both countries. A Socialist President and Government in France and a SDP/Green Coalition in Germany might be more prepared to do the right thing as they would be able to engineer the allocation of costs so that they would fall more than proportionately on supporters of the centre-right. But, insofar as they are currently indicating that they might have the will, they are torn because providing any measure of support to the incumbents would be exploited by them to secure re-election. If DSK could have contrained his brain to remain north of his shoulders and not south of his waist he might have had the stature to force the pace in France and expose Sarkozy as the puny tactician he is, but the pygmies striving to secure the nomination that was his do not have what it takes.

But this is all out of our hands, even if it is fun to speculate. And I remain convinced that the EZ will continue to exist with much tighter governance, but it may be reduced in scope. It may prove necessary to place Greece, Portugal and, possibly, Spain outside following some debt and bank restructuring (the latter across the EZ), with a measure of devaluation and a subsequent associate but tight relationship (similar to Sweden and Denmark), but with an option to re-secure full membership eventually. And Italy could split with the Mezzogornio moving outside.

And, if it were to come to this, would Ireland really want to be a member of this club?

yes, it appears to be true, because, as Hoggie noted, Siemens actually have their own banking arm. Although, in this situation they also appear to be getting a higher rate at the ECB (1%) than they would get off the banks in question (prime banks currently pay below ECB for short term funding most of the time), so it actually makes sense for a number of reasons.

Siemens set up the bank last year as they found that many of their customers couldn’t get financing to buy their products as banks were hoarding cash, so they figured it made sense to have a work around for it. Car and aviation companies have done similar things for a good while, but i expect many more large manufacturing companies to get involved in the next few years unless the banks can turn themselves around.

I can certainly see some form of ‘two-tier’ EZ being secretly kicked around at the moment within the core to see if they can come up with something workable. A kind of ‘Bundesliga’ for the fortunate few and an ‘Airtricity League’ for the others (though no doubt dressed up as a ‘Serie A’ league to make them feel better.

We could have thrilling play-offs each year for promotion – sadly though, I suspect it would be a case of who scores the least own goals wins :-~

No doubt Frau Dr. Lardy-whatsit already has the red card out of her pocket for a certain Latin country.

I agree that the odds on a “two-tier” set-up are shorter with the current political complexion of the core country governments that they would be with something more centre-leftish, but I remain convinced that something will be confected to keep the EZ intact with Greece in a very high dependency intensive care unit. And one thing we can be sure of is that a total collapse of the EZ will not be countenanced.

But the question that still remains is, while it remains sheltered from the storm, does Ireland have the collective will to do what it takes to be a Division 1 player?

Chairman Michel Pebereau insisted that his and other French banks have no need for new capital even though their shares have been hammered in recent weeks over concern about their financial strength and access to funding. “We have no need at the moment for any recapitalisation,” told RTL

yeah, the headline was slightly misleading, as if it was something “new”.

European banks are definitely coming under funding pressures, but i’d suggest it’s not nearly as bad as some media outlets are making out, while being much worse than most official outlets are willing to admit. Its tight and uncomfortable, rather than becoming a major threat. But this stuff does have the ability to get out of control quite quickly, hence why we’ve seen the global central banks trying to get out in front of it in the last couple of weeks.

The Siemens thing seemed to happen in July actually, so its more of a general move out rather than some knee jerk reaction to the latest blow up. Its generate an additional 50-75bps for Siemens as well by going to the ECB, so its not just a credit issue.

@ Paul
The survival of the Euro is a possibility. The collapse is easily as likely. In two outcomes of similar probability it is probably best to prepare for both. I would begin the preparations for exit – not because we want to but because we may have to.

@ Eoin
That means they’ll have to pay back that debt to their own banks in 3 months time. Their banks recently merged didn’t they. I think there was some foreign interest in the new bank Eurobank or something). So the guys buying into the new bank must have calculated that the EFSF would stump up the cash if the Greek govt couldn’t. I’m sorry about the rambling nature of this but just trying to figure out what the guys running the show think is going to happen. My bet is that they figure on one more Greek bailout and then kaboom. I would actually bet money that the Troika will approve another tranche (as the Greeks cut jobs etc.). Paddypower should open a book on this

I missed the window. It went down a bit but then back up again. I’m sure there’ll be plenty more opportunities in the coming days.

@Eureka

I’m kind of with you on the thought Greece might get one more tranche of bailout and then kaboom. They (TPTB) haven’t bought enough time yet to protect their banks from the fallout (unless they think they can do it by the mid-October date they’ve now earmarked for this latest tranche).

Biggest fear at the moment must be that Greece might pull the plug before they are ready? If Greece calls for a snap election or some other stunt – and there are very strong rumours around referendums and snap elections this afternoon – all bets are off.

In an interview with SPIEGEL, CSU chairman Horst Seehofer, who is also the governor of Bavaria, reiterates that an exit of Greece from the euro zone ‘must be feasible’ if Athens can’t or doesn’t want to go on implementing reforms. He also defends Economy Minister Philipp Rösler, who raised the possibility of a Greek insolvency. ‘

A controlled withdrawal for a few countries and presumably an equeally controlled shock for the creditor banks at the core. It will not be the worst case scenario but the shock effect virtually guarantees a deepening recession in both the EU and the USA with knock on effects around the world.

To have both CSU and FDP contradicting Dr Merkel, their CDU Coalition Leader for local populist purposes is not an encouraging sign. In times of crisis or major dislocations populists need someone to kick – but to see CSU blatantly doing so is troubling in the extreme and shortening odds of a real BIG EZ collapse.

Greece needs a big Big BIG restructuring/default and within the EZ. And Germany needs to cop itself on and LEAD … Slovakians are at it as well …

There is a massive turn to localism and petty nationalism when this Crisis demands Ruthless citizencentric Universal Europeanism and f*ck the banks and the ponzi merchants in the financial system.

@DOD
Yes, I see the CSU guy saying he will not be intimidated.Angela will be kept busy guarding her rear.
It now looks like the Troika have again put off the decision on Greece and are to return in October according to a Greek news agency report. Clearly, Evangelos Venizelos failed to convince them. Closer and closer to the edge!!!!

@PR guy
The real problem is that if you run a model where you see the market as a few very wealthy co-ordinated movers who are intent on forcing an EZ collapse so that they can profit on it you end up being right almost 80% of the time.
That’s a worry. That model fits much better to what has unfolded than an uncoordinated market driven purely by fundamentals.
I don’t like conspiracy theories but the theory about all this being orchestrated actually fits the results.
It’ll be crap but I it’s the unknown unknown that trips them up. One guy makes the connection between Goldman cooking Greeces books and Goldman then profiting from those cooked books bringing down the Euro and it just becomes too easy to join the dots

I believe we should pay attention to the fact that the EU hostile parties are taking a drubbing in the last five Lander elections. The German public are quite attuned to the fact that their prosperity depends on exports and the so called periphery was and will be a profitable market. They are also cognizant of the fact that Europe tore itself to shreds in three wars, namely the Franco-Prussian, WW1 and WW2. The EU and the Euro Zone are seen as essential to peaceful cooperation among European nations making countries inter dependent and markedly reluctant to spoil their own nest.

The larger picture dictates that the Euro Zone must survive for every bodies sake because cracks in the EZ will lead to cracks in the EU. While we will not become a USE in the sense of the USA mechanisms must be found to ensure the continuation of the greatest development in Europe since the end of the Roman Empire.

This does not mean Greece will be saved, it does mean it will not be thrown to the wolves without a life jacket. If Ireland and Portugal play their cards right they will survive. Spain and Italy will continue in the Euro Zone because they are too big to fail and too expensive to let go.

The German appointed employees that are resigning from the ECB will be replaced by employees who are capable and have the mental flexibility to deal with the peripheral unwashed. Capable of give and take and not ideologically fixated to the point where they are incapable of operating outside of the Bundesbank.

Frau Merkel herself is losing credibility in business circles due to her decision to close the nuclear plants and her inability to forge a consensus on how to ensure the continuation of the Euro Zone.

In Ireland we can position ourselves as having made reasonable efforts to balance the budget and give some indication that we will not have our hand out forever.

I have absolutely no doubt that market players sit there every day wondering how they can exploit the situation for profit and/or squeeze money out of governments and central banks. They view it as taking candy off a baby.

It is co-ordinated to the extent that more than one company arrives at the same conclusion every day (e.g. let’s short the French banks, let’s force up the interest rates on Italian debt, etc. and create momentum/rumours/whatever it takes to get the desired end result) and that they act like a pack of wolves (‘herd’ is far too docile an expression) – when one sniffs blood the others are right behind.

I’ve not actually seen any proof that they act in concert at the corporate level – too competitive with each other – but friends who work in different companies ring each other up on a personal level to tell each other what they are doing and that is usually how what looks like co-ordinated action comes about

I know because I work for these people and I can assure you, they are utterly ruthless.

Eurozone prospects have remained unchanged – continuing crisis, and more political incompetence and stupidity, backed up by idiotic economists, and false forecasts and analysis.

The continuing turmoil on the markets, and inability of Irish and European government austerity measures to deal with the crisis shows the utter futility of the present course of action and mindset. There is a desperate need to move away from the current economic paradigm, so beloved of our government ministers and civil servants. I have created a series of alternative proposals to the government policies and bank bailout mechanisms. They are practical and innovative and would remove the private banking debt burden off the backs of Irish taxpayers and the unemployed and disabled and onto the backs of the private bankers and central bankers. You can view the alternative proposals at http://www.goodwillbank.com.
Have a read and see what you think.